When it comes to streamlining your staffing operations, few partnerships can be more beneficial than an employer of record (EOR). The right EOR partner will take on all the responsibilities and liabilities associated with employment, from performing background checks to providing unemployment insurance.
Chief among the areas that an EOR takes over are the legal responsibilities of an employer. In a litigious world with ever-changing rules and regulations for how to manage both full-time and contingent employees, the ability to outsource staffing-related legal responsibilities can give business owners much-needed peace of mind.
These legal benefits are one of the strongest arguments for partnering with an EOR.
1. Ensure Proper Worker Classification
Worker classification is one of the biggest areas where a business could get itself into legal trouble. This is especially true in a time when there are more freelancers and independent contractors than ever before — over 70 million in the United States as of 2022.
The IRS uses several criteria to determine if a worker should be classified as an independent contractor or an employee, such as the degree of behavioral and financial control a company has over the worker.
Improper classification — even when done accidentally — can result in hefty fines and penalties. By outsourcing this responsibility to an EOR that understands worker classification law, you’ll have one less thing to worry about when engaging with a variety of workers.
2. Manage Tax Withholdings and Deposits
Employers are required to manage tax withholdings and deposits for their salaried employees. On the other hand, no taxes are withheld for freelancers, who are responsible for making quarterly tax payments.
This is one area where a business can’t afford to make mistakes. Once again, making a mistake in this regard — such as withholding taxes from a freelance worker or failing to make correct tax deposits for your full-time workers — can create major legal headaches. Properly managing not just federal taxes, but also state and local taxes, requires up-to-date knowledge of current regulations and sound financial tracking.
When you partner with an EOR, the EOR will be responsible for tax withholdings and deposits for the individuals it employs. Even if those individuals regularly work on-site at your office, you won’t have to worry about managing their tax withholdings. You will only be responsible for tax withholdings and deposits for individuals who are directly employed by the business.
3. Track Laws For Compliance
Employment compliance laws are constantly changing — and not just on a national level. For example, California is poised to enact several major changes to employment law in 2023, addressing topics such as pay transparency, pay data reporting, leave requirements and retaliation in emergency conditions.
In addition to state guidelines, many counties and municipalities have their own laws that could have implications for you if your business were to hire an individual from the affected area. With the increased prevalence of remote work, a sound understanding of the employment laws for every area you hire from is crucial.
Fortunately, with an EOR, this doesn’t have to concern you. The EOR will be responsible for monitoring any changes to federal, state or local laws that could affect its employment practices. This is their team’s focus and responsibility, which helps ensure that all relevant laws are noted and properly adhered to.
4. Benefits Administration
Full-time employees are legally entitled to a wide range of benefits, such as workers compensation, unemployment insurance, Social Security and Medicare and health insurance. While requirements can vary based on factors like employee classification and the size of the business, failing to provide required benefits can result in significant financial penalties. In addition, many states mandate additional benefits, such as disability insurance.
While such benefits are essential for protecting the rights of workers, they can become a legal and financial challenge for employers. Understanding which employees qualify for benefits, determining which service providers to use for different insurance benefits packages and so on can cause major administrative headaches.
By partnering with an EOR, this doesn’t have to be the case. The EOR can determine which workers are eligible for benefits, and find the most efficient method for administering these benefits. Your business is only responsible for paying a flat fee to the EOR for each worker it provides. This can ultimately prove much more cost-effective than administering various benefits packages on your own.
5. HR Liability
Human Resources is another area that is crucial for helping a business run smoothly — but it is also rife with potential legal pitfalls. The Equal Employment Opportunity Commission (EEOC) and Federal Trade Commission (FTC) have requirements for how background checks can be administered during the hiring process. There are also laws in place regarding discrimination in job assignments, pay and benefits, discipline and termination.
An employer who acts in a discriminatory manner in any of these employment issues could be subjected to lawsuits and legal penalties. In addition, employers may also encounter situations where a disgruntled former employee files legal action because they feel they were wrongfully terminated from their position.
An EOR takes on these various Human Resources tasks to ensure that everything is performed in compliance with all applicable regulations. The EOR will handle both onboarding and termination of workers to ensure that everything is done properly — and they assume liability if a legal challenge is presented.
Strengthen Your Legal Standing With an EOR
When you work with an EOR, the EOR serves as the direct employer for the individuals it hires. At the same time, your business can still manage their day-to-day duties and activities. By outsourcing HR and legal responsibilities to an EOR, you can focus on getting the best results from the people who contribute to your business, while letting someone else manage the essential legal tasks associated with employment.
At the end of the day, the greatest legal benefit of working with an EOR is knowing that your own business is protected from risk and liability.
With myBasePay, you can enjoy a dependable EOR partner that meets the urgency of your day-to-day operations. By assuming employment liability, benefits administration, claim management and more, you will experience unwavering support in a highly regulated area so you can focus on growing your business.
Author: Cesar Jimenez, myBasePay CEO
Cesar A. Jimenez is an entrepreneur, investor, and military veteran with over 25 years of staffing industry expertise successfully leading technology staffing organizations. His expertise in the IT industry allows him to use his experience as a thought leader for talent acquisition, staffing, IT, and recruitment technologies with a passion for contingent workforce solutions. Cesar has held various leadership roles for both a global staffing organization and technology solutions companies. This expertise has enabled him to develop alternative workforce models that provide the agility for organizations to be competitive in today’s marketplace. In his spare time, he enjoys spending time with hisfamily, working out, and coaching high school baseball players.